New Haven, like other major cities in Connecticut, is home to private colleges, universities and hospitals. It is also the site of state-owned and -operated offices and facilities. All of those institutions serve residents of surrounding towns as well as people living in New Haven.

The city is also home to businesses that employ residents of the metropolitan area. In fact, 81 percent of those employed at living wage jobs in New Haven reside outside the city.

Providing police, fire, emergency and a myriad of other services to those businesses, nonprofits, their employees and patrons costs the city a substantial amount of money. But the primary source of that money, the property tax, doesn’t apply to 47 percent of the land and buildings in New Haven because nonprofits such as universities and hospitals, as well as the state, are exempt from taxation of their real property.

Allowing nonresidents to benefit from the medical, educational, and other nonprofits located in New Haven and other urban centers without requiring them to bear some portion of the cost of the services such as fire and police protection that cities provide to those entities is fundamentally unfair because those nonresidents are, essentially, free-riding on those services.

The Legislature has recognized that the loss of tax revenue otherwise payable by such exempt entities places the entire cost of providing municipal services to them on their host municipality and its taxpayers. To remedy that inequity, the Legislature enacted the PILOT (payment in lieu of taxes) program. It provides that the state compensate municipalities for 77 percent of the taxes universities and hospitals would pay if they were taxed as privately owned properties and 45 percent of taxes the state would pay on its properties if they were likewise taxed.

In New Haven, 45 percent of the real property is tax-exempt. One alderman estimates that if the Legislature fully funded its PILOT obligations, the city would receive $45 million to $50 million in additional revenue. However, the amount reimbursed in recent years has declined significantly from the required percentages. Most recently, New Haven received only 32 percent (rather than 77 percent) for universities and hospitals and 23 percent (rather than 45 percent) for state property. Some nonprofits do voluntarily contribute to their host cities, somewhat alleviating the burden. For instance, Yale plans to give New Haven $8.3 million this year and has paid significant amounts in the past. However, most other nonprofits are unwilling or unable to follow Yale’s lead.

The failure to fund PILOT at the statutory level results in a higher mill rate on city businesses and residents. Every time a nonprofit expands its real estate holdings, as Yale recently did in West Haven, Quinnipiac did in North Haven, and the University of New Haven did in Orange, the problem is exacerbated. Property is removed from the tax rolls, and the burden on taxpayers increases. Underfunding PILOT may force host cities to engage in unsound financial practices, such as postponing funding pension liabilities, thereby increasing the tax burden on future generations. It has been estimated that if the state paid its entire PILOT obligation annually to New Haven, the city could reduce its tax rate by 20 percent and begin to fund its pension obligations in a fiscally sound manner.

What can be done? The New Haven Board of Alders passed a resolution on Feb. 3 “requesting and urging the Governor and the State Legislature to honor and restore PILOT funding to statutory levels creating fiscal consistency and easing the overburdened city taxpayers and city services.” New Haven Mayor Toni Harp, an experienced former state legislator, is expected to ask for an additional $5 million in PILOT money, not nearly the full statutory amount but a sum she believes is realistic. She would use it to hire more police, firefighters and public works personnel, employees who provide direct services to tax-exempt entities.

Alderman Michael Stratton has hired a lobbyist to work on the matter with the Legislature. A few years ago, former Mayor John DeStefano hired a law firm to investigate a legal challenge to PILOT underfunding. A lawsuit based on equal protection claims was considered but ultimately the city decided the political process would be more effective.

The state is expected to have a surplus of more than $500 million when the current fiscal year ends on June 30. There are undoubtedly many beneficial and fiscally prudent ways to use that money. One of them is to increase PILOT funding and reduce the tax inequity imposed on city residents who bear the cost of providing services to tax-exempt entities that benefit us all. We recommend it.•